Citywire has reported that Peter Leger, who runs the $620 million Coronation Africa Frontiers fund, is advising investors that investing in the subsidiaries of multinational firms is the safer way to gain exposure to frontier markets in places like Africa. In his half-year report, Leger stated:

The African continent is filled with wonderful businesses that have a majority shareholder in the form of a global recognised company… Whether it’s Nestlé, British American Tobacco, Lafarge, Barclays, Heineken or Vodafone, these African businesses exist across a multitude of industries and geographies.

And:

Typically we would be willing to pay a higher price earnings multiple for a subsidiary of a multi-national than we would for a similar local company as we believe that the benefits, most of which are softer non-financial in nature, usual translate into better financial returns.

However, he also gave this warning:

Last year, GSK Plc made an offer to minority shareholders to buy half of their holdings at a price that we believed was well below the fair value of the Nigerian subsidiary… Given the immaturity of the regulations in Nigeria, GSK Plc were legally permitted to vote their majority shareholding and force the deal through.

Leger said the fund opted to engage in minority shareholder activism which ultimately led to the SEC prohibiting GSK Plc from using their voting shares and the proposed takeover offer was withdrawn. Nevertheless, Leger still believes that the better level of corporate governance and stronger balance sheets makes multinationals a more attractive way to invest in the frontier for the long-term.